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The world’s largest asset manager is pushing companies to reveal how they will survive in a world of zero net greenhouse gas emissions.
“Because better sustainability disclosures are in the best interests of companies and investors, I urge companies to act quickly to publish them rather than waiting for regulators to impose them, ”BlackRock CEO Larry Fink said on Tuesday. , in its annual letter to CEOs.
The business world is realizing that so-called ESG factors – environmental, social and governance measures – pose financial risk, and companies that do not adapt will be left behind.
Indeed, Fink said in his letter that as investors shift their holdings towards sustainability-focused companies, “the tectonic shift we are witnessing will accelerate further.”
“More and more people understand that climate risk is an investment risk. … When finance really understands a problem, we take that future problem and raise it. This is what we saw in 2020 and what we are seeing now ”. Fink said Tuesday on CNBC’s “Squawk Box”.
“The flows to sustainable development funds, even in January, are increasing, not decreasing, and this will continue in 2021,” he said.
ESG investing became mainstream during the bull market boom, leading many to view it as just a bull market phenomenon. But amid the sell-off of stocks as the coronavirus rocked markets in March, investors crowded into sustainability-focused funds. Many of them ended up outperforming their peers.
Last year, from January to November, investors in mutual funds and exchange-traded funds invested $ 288 billion globally in sustainable assets, an increase of almost 100% from the previous year. set of 2019, according to BlackRock.
“They [investors] are also increasingly focused on the significant economic opportunity that the transition will create, as well as how to execute it in a fair and equitable manner, ”Fink wrote in his letter.
“No problem ranks higher than climate change on our clients’ priority lists,” he writes. “They ask us questions almost every day.”
Amid the surge in ESG fund flows, some have said it has reached bubble-like territory and valuations are starting to look strained for some of the most popular pure play names linked to the energy transition.
But Fink said that, as with any new trend, there will be winners and losers. He compared the industry to tech companies over the past 20 years, noting that they ultimately increased their profits.
This is not the first time that Fink has sounded the alarm bells on the role of the corporate world in climate change.
In his 2020 letter, he said a financial overhaul was underway and the company was revising its investment strategy to put sustainability at the center.
His letters from 2019 and 2018 also focused on the idea of stakeholder capitalism, or the fact that companies should be looking for something more important than lining the pockets of their shareholders.
Critics of ESG investing say it’s difficult to rate a company given the subjective nature of some metrics, as well as a general lack of data disclosure.
In the interest of greater transparency, BlackRock said it is asking companies to indicate how their business model will be compatible with a net zero economy.
In a separate letter to clients, BlackRock said it would help investors identify leading companies by employing a “deep review model” in its actively managed portfolios. The company will also create a “targeted universe” of investments particularly sensitive to climate risks.
With $ 8.68 trillion in assets under management, BlackRock’s words and actions carry weight, and some argue that the company’s push towards a greener future is too little, too late.
Of course, its myriad of offerings, including ETFs that track the S&P 500, means it’s difficult to unilaterally sell stocks of companies that engage in activities that might not match a client’s values. .
“It is encouraging to see BlackRock finally willing to pull companies out of active funds due to too slow action on the climate,” said Gaurav Madan, forestry and land manager at Friends of the Earth. The environmental group is one of the partners of BlackRock’s Big Problem, a global network of NGOs and financial lawyers who lobby asset managers to change.
“It’s a welcome change in BlackRock’s strategy,” said Madan. “But this threat alone is not enough at this point in the looming crisis.”
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